Sovereign Funds Vs. Asset Managers: The Big Picture

January 28, 2016

A number of asset managers who focus on institutional investors such as commodity-based sovereign wealth funds have been ravaged with redemptions. The rapid descent of oil prices flummoxed wealth fund chiefs. In response to the oil glut, the money management spigot for investment managers running listed equity strategies has slowed. Furthermore, Middle Eastern sovereign funds have been dumping some hedge funds (some shuttered operations), while Canadian asset giants shift more focus toward private credit, real estate and infrastructure investments. However, for some cash-rich sovereign wealth funds like the Abu Dhabi Investment Authority (ADIA), the sustained low price of oil has a negligible effect on their real estate investment activities.

Even the large investment houses like State Street Global Advisors (SSgA) have taken a hit. SSgA reported assets under management of US$ 2.245 trillion as of December 2015. The investment company experienced outflows of US$ 151 billion in 2015, a fall of 8.3% in assets under management. On an earnings conference call, State Street Chief Executive Jay Hooley said, “Institutional net outflows (in 2015) were primarily driven by client asset allocation shifts and redemptions by a client that is in-sourcing their business.”

Hooley explained SSgA lost US$ 35 billion at the end of 2015 from a large sub-advisory client, but said the revenue associated with the client was not significant. More asset owners, especially large entities, are managing passive investments and smart beta strategies in-house.

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